Change in principle-long-term contracts

Reference no: EM13762241

(Change in Principle-Long-term Contracts) Choice Two Manufacturing Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2014. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.

Pretax Income from:

Percentage-of-Completion Completed-Contract Difference

2013 $680,000 $500,000 $180,000

2014 600,000 560,000 40,000

Instructions

(a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2014?

(b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

Reference no: EM13762241

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